IN the exchange-rate drama of recent weeks, the German mark, the British pound, the Italian lira, and the United States dollar got most of the attention. But two less important currencies were in the spotlight briefly.
The Swedish crown and the Finnish markka discovered that being outside the European Exchange Rate Mechanism may well be even more harrowing than being inside it.
The responses of the two countries to the extreme pressure on their currencies from high German interest rates and a strong mark illustrate the differences between their economies.
As aspiring members of the European Community, both countries are pledged to holding their currency steady vis-a-vis the currencies of the European Exchange Rate Mechanism.
But last week the Finns caved in after considerable efforts to support the markka, and decided to let it float. In short order it fell 13 percent. Finnish officials acknowledged their obligation to steady exchange rates, but also admitted they will have to let the float continue a while.
This action, however, only increased the pressure on the crown - which the Swedes were committed to defending, even though it meant having to hike the marginal interest rate charged by the Bank of Sweden to an attention-getting 75 percent. There it stayed until the German Bundesbank's interest rate cuts made a return to 20 percent feasible.
Having a fixed exchange rate is "an anchor of economic policy," says Krister Andersson, head of the economics department, Bank of Sweden. "It sets the basis for economically sustainable long-term growth."
Under fixed exchange rates, businesses are held to a standard of international competitiveness, and they get the message that the government will not bail them out if they get into trouble, he adds.
The view from some quarters has been that if two so similar countries, facing similar economic problems (negative growth and rising unemployment) have taken opposite courses of action, one of them must be wrong.
But Sweden and Finland are very different, Prof. Anders Aslund of the Stockholm School of Economics says: "Foreign markets are confusing them because they are in the same area."
The Swedes are on a mission, with a serious plan to restructure their economy, cutting back its public sector and sticking with the discipline that fixed exchange rates instill.
Compared to Finland, Sweden has a more diversified economy, with a trade surplus and a strong mix of high-value exports - roughly 30 percent of gross domestic product. And despite a few years' flirtation with devaluation as an economic-policy tool between 1976 and 1982 (much regretted, Professor Aslund says), the Swedes have not devalued as often as the Finns.
As the Swedish Finance Ministry noted in its statement supporting the Bank of Sweden's actions to defend the crown, "Finland suffered a loss of some 20 percent of its former total foreign trade within a time span of two years. For Sweden, the Soviet Union and Eastern Europe were almost marginal export markets."
Moreover, the small share of Soviet/Eastern Europe trade the Swedes have had was in high-end products and had held steadier.
The Finns are facing 15 percent unemployment and a trade deficit. They are also heavily dependent on the forest-products industry, Aslund notes, which is highly cyclical and which puts the Finns at a competitive disadvantage now that the US and Canadian dollars are weaker. This makes North American goods more attractive in price.
The Swedish economy "was actually overheated just a few years ago," says Mr. Andersson. Today the country is on a serious program of reforms.
A new center-right government under Prime Minister Carl Bildt came into office last year, but actually the reform program started under Mr. Bildt's predecessor, Ingvar Carlsson. The Bildt government "has continued the reforms initiated by the Socialists," Andersson notes.
Sweden applied for European Community membership in 1991, and may get it as early as 1995 - subject to delay if the Maastricht treaty is derailed.
"There's been a shift in policy emphasis, with a focus on sustainable inflation, an effort to take into consideration the economic development and the economic integration of Europe," Andersson says. Sweden's economy has been largely deregulated and its taxes cut.
Problems remain: Gross domestic product shrank 1 percent last year, and is likely to shrink a further half-point this year. Unemployment is at 7 percent, high by Swedish standards.
"The biggest problem is the budget deficit, but that can be reduced," Aslund says, by cuts in the public sector.
Inflation is down from double digits to a little under 3 percent, one of the lowest rates in Europe; productivity is rising.
"There is a very broad consensus in Sweden - virtually no opposition," to the reform program, Andersson says. "It's not only among the political parties but within society as a whole."